How the Stock Market Reacted to Wells Fargo’s 3Q15 Earnings

Apple (AAPL – News) is still in bear market decline and sits around 20% below its $ 705 peak. The stock hit a 3-month low of $ 525.62 on 11/15 and still has technical damage.

Social media stocks like Facebook (FB – News), Zynga (ZNGA – News), and Groupon (GRPN – News) that were promoted as a sure thing – are down between 45-90%.

Hewlett-Packard (HPQ – News) shares hit a 10-year low today. The company took an $ 8.8 billion charge claiming more than $ 5 billion of that amount was because of false accounting from the value of Autonomy.

Intel’s (INTC – News) share price is down -17% since August and Paul Otellini, its CEO plans to retire in May 2013. The chipmaker’s business, like others that relied heavily on computers (XSD – News), is deteriorating as technology shifts away from desktop computing to mobile.

After leading most of the year, technology stocks are now underperforming major stock market benchmarks like the S&P 500 (IVV – News) and the Dow Jones Industrial Average (DIA – News).

Tech is Big…Very Big

Technology is an important component of the broader stock market – making up 18-22% of sector representation. That’s much larger compared to other sectors including financials (NYSARCA:XLF) and healthcare (XLV – News). When it was rallying, the tech sector lifted the market. Conversely, its recent decline has acted as a major performance drag.

Even before the fall in tech shares, we correctly anticipated that bullish market sentiment in the sector was overheated. And besides other factors we track, the headlines proved us right. Here’s a sample of the rosy outlook from just a few months ago:

“Apple could be worth a trillion in one year” – The Atlantic Wire on 9/23/12

Fast forward to now.

It took Apple four months to rally 20% (Jun-Oct 2012) but just a little over one month to drop 20%. (Sep-Oct 2012) Right as Apple and the rest of the tech sector was topping, the ETF Profit Strategy newsletter alerted readers with this 9/20/12 update:

“In the short-run, technology ETFs look overstretched, so a pullback to $ 63-66 zone for QQQ, $ 27-29 for XLK wouldn’t be out of order.”

Since that 9/20 alert, the Nasdaq-100 (QQQ – News) has fallen almost 10%. (See chart above) Not only did we hit our target zones, but inverse 2x (QID – News) and 3x (TECS – News) are ahead between 15-25% over the past month. Antifragile investing at its finest, you might say. (See Nassim Taleb’s wonderful WSJ article on “Learning to Love Volatility.”)

The ETF Profit Strategy Newsletter uses relative strength analysis along with common sense technical analysis to provide a short, mid, and long-term forecast along with actionable buy/sell recommendations. This is how we identify key trend changes in the sectors as well as the broader markets.

In summary, it will be difficult for the stock market to recover without the participation of the technology sector.

Money Matters

Another advantage that 4x has over stocks is the advantage of trading focus. Instead of having to choose between over 4,000 stocks you can deal with 4 main currency pairs. Any good business person knows that focusing on too many things is a recipe for financial disaster and this can hold equally true in the stock market. A stock trader also must grapple with the time issue doing research on all those potential stocks presents. It is also much easier to become familiar with 4 things as opposed to 4,000 things. Focus is the name of the game and 4x trading makes it much easier to do so.

Professional angels are lawyers, accountants, and doctors who want to make investments in companies that offer a service or product with which they have little experience. Their main goal of investing is to be hired by the business at the same time as consultant in their area of expertise.

In some cases, in fact, it's not even the same fund to begin with. Remember, after a management change, the rating stays with the fund, not the portfolio manager. Therefore, a fund's rating might be based almost entirely on the track record of a manager who is no longer with the fund.